'Friends' Card Problems Make it Even More Difficult to Earn A Little 'Loyalty' at Fresh & Easy Neighborhood Market

Analysis & Commentary

On June 30 of this year we broke the news in this story [Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year] that Tesco's Fresh & Easy Neighborhood Market would be launching a customer loyalty-rewards program and card this year.

On July 18, 2011, the grocery chain confirmed our report in a press release, announcing its plans to test such a card in its seven stores in the Bakersfield, California region in October, with a chainwide roll out to follow before the end of the year.

Fresh & Easy "tested" its "Friends" loyalty-rewards card very briefly in the Bakersfield-area stores in early October, deciding to launch the card, which offers customers points they can then redeem for cash discounts in the stores, shortly thereafter, saying the brief test went so well they decided to take the card chainwide earlier than originally planned.

As part of our detailed June 30, 2011 story, we noted the comments below, which came from a source in a good position to speak about the loyalty/rewards program's development at Tesco's Fresh & Easy:

"In fact, one of our sources who's familiar with Fresh & Easy's loyalty program tells us, from the source's perspective, the program lacks expertise from a marketing, information technology and software delivery standpoint. And when it comes to loyalty programs, IT, software performance and marketing are about all that matters. Therefore, in the source's view, Fresh & Easy's loyalty program is far from ready for prime time." (Read the entire story for the full context of the paragraph above.)

Our source was, as they like to say across the pond ... "spot on."

Fresh & Easy Neighborhood Market's launching of the card has been plagued by problems, some of which we've tweeted about periodically on our Twitter feed since the October launch.

Since the launch last month, we've heard from numerous readers who've experienced various problems signing up for the card online, along with, in the case of those who didn't give up on the online sign-up process completely, having problems loading the digital points on the card, and for those who achieved that, then redeeming the cash reward points in-store.

We've also observed the problems first-hand in various Fresh & Easy stores we've visited, where we've talked to both customers and employees about the card's introduction and problems.

We also conducted an online sign-up process in-house here at Fresh & Easy Buzz to test it. The result: Numerous problems, most of which are described in this piece.

Fresh & Easy customers who've signed-up for the card in-store have reported a less painful process than those attempting to do so online, based on our reporting.

We haven't written about the problems with Fresh & Easy's loyalty card - the first heads up which was given in our June 30 story - in the blog until now for two reasons - (1) we haven't had a chance to yet (it's been a busy month), and (2) we wanted to give the grocer a decent period of time to fix the problems, which are at their most basic and most immediate technological, but also are systemic with the loyalty card scheme itself, in our analysis.

That systemic aspect has at its heart two things: The rewards points are just too low from a relative perspective, and the entire card scheme is way to complicated. Both can be fixed - and should be soon.

Nancy Luna, a writer-blogger for the Orange County Register newspaper in Southern California has been hearing similar complaints from her readers, along with experiencing the technological and related problems with the "Friends" card directly.

She wrote about her own experiences with the card today (see here). In her piece Luna also offers a number of comments from readers about their experiences signing up for and using the "Friends" card.

For her story, Fresh & Easy Neighborhood Market's corporate spokesman tells the writer that the main problem with the loyalty card has been a faulty magnetic strip on the back of the physical card, which he says the grocer is fixing with the next batch of plastic cards it orders.

But the problems we've identified since the October launch go far beyond just the magnetic strip on the plastic card.

Those problems include: difficulty with the online sign-up (Fresh & Easy's twitter feed has been filled with customer requests for assistance with this process since the card was launched in October, for example), not getting proper discounts in-store and a number of others, many of which are the same complaints voiced by Ms. Luna's readers in her piece today and communicated to use by readers of Fresh & Easy Buzz and others.

Tip: One reader told us he's solved the magnetic-strip problem by using the scanner-price gun at the checkout stand to read his "Friends" card because the card reader won't read it when it's swiped.

Fresh & Easy's loyalty-rewards card was developed in-house and by its Dunnhumby firm in the United Kingdom, which it now owns 100% of. Dunnhumby has an office in the U.S., in Ohio, but could not develop the card for Fresh & Easy because the U.S. branch has an exclusive loyalty card program deal with Kroger Co., as we noted in our June 30 story.

It's clear our source was correct in June when he said the technology behind Fresh & Easy's loyalty card was not ready for prime time, evidenced by the numerous problems consumers are having signing up for it and using it in the stores.

We should say the rank-and-file employees at Tesco's Fresh & Easy - from the people answering the many complaints and questions on Twitter to the workers in the stores - have been working hard and doing their best to fix the problems and make the card work for customers.

But we should also say: They shouldn't have to be using their time to do so. Senior management and CEO Tim Mason should have made sure the card, the technology behind it, and the launch was "ready for prime time."

Why then did CEO Tim Mason decide to launch the "Friends" card chainwide in October?

He was made aware of the potential technological problems, our sources say, including the one who gave the heads up in June. And, of course, the caution was right there in our June 30 story, for all to see. The blog does get a number of daily hits from the El Segundo, California USA zip code.

We can't answer that question fully, although a prime motivator behind the card is the hope among senior management that it will allow Fresh & Easy to stop issuing its deep-discount store coupons on a chronic basis.

That hasn't been the case so far this month however. The grocer has issued online coupons good for $10-off purchases of $50 or more coupons via its "Friends" e-mail program four times this month. The first one coming out November 2, followed by another voucher on November 9, a $10-off-$50 coupon on November 16, and another of the same value today. Fresh & Easy has also distributed the coupons in its paper-version advertising circulars this month.

But specific motivations aside, this isn't the first time Fresh & Easy has launched a program it wasn't ready to handle, although this is the first major instance of doing so in a big way in the Philip Clarke era.

Clarke replaced Terry Leahy as CEO of United Kingdom-based Tesco in March of this year. Fresh & Easy Neighborhood Market was Leahy's baby, and was launched in the U.S. in 2006, the first stores opening in November 2007. There are currently 184 Fresh & Easy markets in California (135 stores), Nevada (21 units) and Arizona (28 stores).

Since becoming CEO of parent company Tesco, Clarke has taken a very hands-on approach with Fresh & Easy, which in his previous positions as head of corporate IT and chief of European and Asian retail operations at the United Kingdom-based retailer he had virtually no involvement with from 2006-2010.

For example, Clarke visits Fresh & Easy's corporate headquarters in El Segundo, California and the distribution campus in Riverside County near-monthly, along with visiting stores regularly when he's in Southern California. Three of his regular stops, for example, are the Fresh & Easy markets in Manhattan Beach, Burbank and Whittier, where he talks with employees regularly.

Clarke has also initiated numerous changes at Fresh & Easy, the in-store bakeries and coffee bars being installed in about 100 of the 184 stores being two of the most significant, since becoming CEO of Tesco in March.

The loyalty card is also something he promoted, as it takes as its inspiration Tesco's ClubCard, which has proven to be very successful for the retailer in the UK. Leahy, Clarke and Mason are all big fans of the Tesco card.

But the Fresh & Easy "Friends" card is a card of a different matter - it's a different type of loyalty card (100% rewards) for a different type of grocery chain (small-format only; Tesco operates multiple formats in the UK) that's located in another country (the U.S. and not the UK.)

The "Friends" card program problems we describe and those described in the Orange County Register story have existed since the first day of the chainwide launch in October. Whatever test there was in Bakersfield obviously didn't serve any real purpose. Tests are supposed to spot such technological problems, after all.

We've talked to a number customers who like the card despite the problems - although most tell us they feel it's too complicated a scheme, and that the points aren't high enough relative to purchase amounts to make the savings significant.

For example, it takes 500 points to equal a $5 discount.

We don't think this is a particularly insignificant discount, based on our experience in the industry. However, Fresh & Easy shoppers are used to getting coupons from the grocer for $5 off purchases of $20 or more, so their frame of reference regarding it taking 500 points, which requires a shopper to spend $100 to obtain, is based on the coupon value they've been getting regularly for years in the "friends of Fresh&easy" e-mail-based program, which the loyalty card is now the central aspect of. From that perspective, we understand why many customers feel requiring 500 points to get a $5 cash discount is too low in terms of the spend-to-points ratio.

Fresh & Easy has heard this complaint from customers because it's now offering two-times the regular point value on the card between now and the end of the holidays. However, come January 1 the grocery chain is going to have to figure out what to do about the point value, because it is something many shoppers are not happy with.

Additionally, the more points Fresh & Easy offers on the card, the more discounts it gives out. Those discounts to customers don't come out of thin air or from the Tesco Santa Claus. Instead, the discounts come out of Fresh & Easy's gross margins.

For example, Fresh & Easy is offering Jenni-O frozen turkeys for 39-cents pound, which is already at or below the grocer's cost. Last week they gave 500 bonus points to "Friends" card holders who bought one of the birds, which is a $5 cash discount that can be redeemed in-store.

But Fresh & Easy also issued a $10-off $50 store coupon the same week, which can be used to turn a $50 purchase, which might include a frozen Jennie-O turkey or two, into a $40 purchase.

The point: All these discounts come out of margin, which at Fresh & Easy must be raised demonstrably from its current negative 30%-plus level (trading margin) in order for Tesco to meet its objective of breaking even with the chain by February 2013, the goal CEO Clarke has set. Heavy discounting like that described above makes achieving that extremely difficult.

These technological problems with the "Friends" card can be fixed, although its late November and they haven't all been fixed yet. But damage has already been done.

In terms of the overall loyalty/rewards card scheme, simple and significant are two key variables for any successful program. Therefore, Fresh & Easy must make its program more simple overall and make the points system more significant to shoppers, if it wants the card to do what it hopes it will do. And it needs to do that soon.

Meanwhile, as we were the first to report in this story on November 10 [Chief Marketing Officer Uwins Out in Top-Level Reshuffling at Tesco's Fresh & Easy Neighborhood Market], Simon Uwins, who was Fresh & Easy's cheif marketing officer and had ultimate responsibility for the launch of the loyalty card program, has left the grocery chain.

Responsibility for the loyalty scheme now falls to John Burry, who has taken on the marketing responsibility at Fresh & Easy, along with keeping his previous responsibility as the grocer's chief commercial officer (head of buying and merchandising). His new title is chief customer officer.

Burry, who had a very full plate already - the center of which features a heaping serving of gross margin improvement as job one - must now make room on that plate for fixing the loyalty card program, which was Uwins' ultimate responsibility before he left two weeks ago.

We will offer some detailed analysis on the loyalty card program at Fresh & Easy in an upcoming story.

But for now the difficulties couldn't come at a worse time for the chain. The October-December holiday sales period is a key selling season for all grocery chains, and particularly for Fresh & Easy because it needs to hit sales goals that have been set relatively high for the period.

Fresh & Easy's employees need to be focused 100% on merchandising and in-store customer service for the Thanksgiving and Christmas period, which are the top two sales holidays in the grocery business in the U.S., rather than having to spend valuable time dealing with technological problems related to what was too early of a chainwide roll-out of its loyalty card, which is something the source in our June, 2011 story made clear for all to read - offering it as an intentional heads up.

Related Stories

November 18, 2011: Fresh & Easy Neighborhood Market Combining Big Seasonal Foods Assortment With Promos and Discounts to Lure Holiday Shoppers

July 17, 2011: Send in the Clowns: Did You Hear the One About Fresh & Easy Neighborhood Market Launching A Customer Loyalty Program?

June 30, 2011: Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year

February 2, 2010: Dunnhumby; Trial Balloons By Media; and Fresh & Easy's Loyalty Card Marketing Trap

December 8, 2009: Analysis: Why A Loyalty Club Card Program Makes Zero-Sense For Tesco's Fresh & Easy USA.

Send in the Clowns: Did You Hear the One About Fresh & Easy Neighborhood Market Launching A Customer Loyalty Program?

Don't you love farce? My fault, I fear
I thought that you'd want what I want, sorry, my dear
But where are the clowns, send in the clowns
Don't bother, they're here..."

- From the song "Send in the Clowns," by Stephen Sondheim

Rupert Murdoch's News Corp. group in the United Kingdom has been in the media spotlight for the past week as the result of the recent discovery, once again, that members of its newspapers' editorial staff, particularly at the now-shuttered News of the World tabloid, hacked the mobile phone and voice mail accounts of various people as a way to "scoop" the competition.

The latest news finds Murdoch's top executive, Rebekah Brooks, being arrested and interrogated by British police after resigning her position the other day, despite her Sergeant Schultz-like claims she knows nothing of the phone-hacking behavior.

To Ms. Brooke's and the News of the World phone hackers we say: Why did you bother?

Instead, it's much easier and less risky to write and publish a story as "news," even though the particular news had already been broken by a blog, Fresh & Easy Buzz, nearly three weeks earlier, and in the process just fail to discover, or if you did discover it, fail to note or attribute where the news first appeared. After all ... In the case of Fresh & Easy Buzz we're just a little old blog that's read by about 100,000 people a week and has 3,400 followers on Twitter, including scores of UK and U.S. supermarket industry folks and a whole lot of journalists and writers from both sides of the pond.

Such is the case with a story in today's Financial Times, titled: "Tesco to trial loyalty card operation at US operation," which you can read here.

On June 20, 2011 we broke the news that Tesco's Fresh & Easy Neighborhood Market is developing and plans to launch a loyalty card program for its chain of 176 stores, which are located in California (127 units), southern Nevada (21 stores) and metropolitan Phoenix, Arizona (28 stores), in this detailed story: June 30, 2011: Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year.

We invite you to read our June 30 story linked above, then read the July 17, 2011 Financial Times' piece published today (linked above and at the end of this story), nearly three weeks later.

The Financial Times' piece offers little added information from our story of nearly three weeks ago, and has far less detail, despite its source, who's very familiar with Fresh & Easy Buzz.

The publication's source of information is Tesco group deputy CEO/Fresh & Easy Neighborhood Market CEO Tim Mason.

Either Mr. Mason's public relations people at Tesco and at Fresh & Easy's headquarters office in El Segundo, California pitched the Financial Times' on doing the loyalty card story - perhaps in part because they read our June 30 report and have been getting tired of the calls from writers from mainstream publications who also read it and have asked if it's true - or the Financial Times' "heard about" Fresh & Easy's plans to launch a loyalty card scheme in its Western U.S. stores and the writer of the piece was thus granted an interview with Tim Mason, who is attributed as the sole source in today's story.

Either way, Fresh & Easy Buzz broke the story on June 30, 2011. And based on a search of all three major search engines, no other publication has written about it since, until today's Financial Times' piece.

If you search using the search terms "Fresh & Easy Neighborhood Market," "Fresh & Easy" or "Tesco's Fresh & Easy" on Google, the most popular search engine by an English countryside mile, you will see Fresh & Easy Buzz almost always comes up as the first listing in the categories. If not, it's almost aways in the top five. Not hard to spot, in other words.

And if you google "Fresh & Easy Neighborhood Market loyalty program or card," which is something a writer of a story on the topic might do before starting work on such a piece and should be the first thing any editor of a major or minor publication does before going to press with a story, you'll see here (as of 6 p.m today) that our June 30, 2011 story not only comes up at the very top - although it might move down once the Financial Times' piece starts getting reprinted by the numerous publications that if they don't check might assume the British-based business publication broke the Fresh & Easy loyalty card story - it's also the only report about Fresh & Easy's plans, until today of course, to launch a loyalty card.

Perhaps the writer of the story and the editors at the Financial Times aren't aware Fresh & Easy Buzz broke the loyalty card story on June 30, 2011? That certainly is possible if the writer or editors didn't do an Internet search and notice the top and most recent item under Fresh & Easy and loyalty cards, which is our June 30, 2011 story.

But now that they're aware of it, the Financial Times' editors can add a sentence to the story published today that goes something like this: "As first reported in the Fresh & Easy Buzz blog on June 30, 2011. A link to the story in the blog would be appreciated as well.

Not long after we published our June 30 story on Tesco-owned Fresh & Easy's loyalty card plans, we sent a direct message and a link to the story to a follower on Twitter, who also happens to be a senior executive at a major food and grocery industry research firm in the UK.

Our tweet: Let's see which major UK-based publication writes about Fresh & Easy's loyalty card scheme first but doesn't mention it was first reported by Fresh & Easy Buzz. The follower's reply: I will keep an eye out. The exchange was related to a discussion of a similar topic. We both have that answer today.

The Financial Times has this notice at the bottom of its story today: "Copyright The Financial Times Limited 2011. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web."

Sondheim's lyrics noted at the top of this story seem to us to fit that irony well.

And the Financial Times has nothing to worry about from Fresh & Easy Buzz when it comes to its end-of-story notice. After all, we've been there, done that on the Fresh & Easy loyalty program story, on June 30, 2011, in case you forget where you read about it first.

Read the two stories at the links below and feel free to let us know what you think.

~Fresh & Easy Buzz - June 30, 2011: Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year.

~Financial Times - July 17, 2011: Tesco to trial loyalty card at US operation.

Tesco's Fresh & Easy Neighborhood Market Developing Loyalty Card Program it's Planning to Launch This Year

Breaking News & Analysis

Tesco's El-Segundo, California-based Fresh & Easy Neighborhood Market is working on a loyalty card program it currently plans to implement in its stores later this year, Fresh & Easy Buzz has learned.

The loyalty program is still being worked on at Fresh & Easy. But it's in its mid-to-final stages of development, according to our sources.

Neither Tesco or its Fresh & Easy Neighborhood Market have publicly mentioned or announced anything about the loyalty program or planned implementation this year. We're the first publication to break the news about the plans.

Those plans currently call for Fresh & Easy's loyalty program to be handled in house, where it's being developed with some outside help, rather than being developed, implemented and administrated by Dunnhumby, the UK firm now fully-owned by Tesco, which developed and administrates Tesco's Clubcard in the UK.

Dunnhumby's U.S. office, which is in Cincinnati, Ohio, can't develop, implement and administrate the loyalty card program for Tesco's Fresh & Easy Neighborhood Market because of its long-term partnership agreement and contract with Kroger Co., who's loyalty card program was developed by Dunnhumby, which is why the firm's U.S. office is in Ohio where Kroger is headquartered

Dunnhumby works closely with Kroger Co. in implementing and administrating its loyalty program, along with creating new marketing programs featuring Kroger's loyalty cards. Kroger Co. is the second-largest  retailer of food and groceries in the U.S. Walmart Stores, Inc. is number one.

The Fresh & Easy loyalty program isn't a direct version of Tesco's popular UK Clubcard. This is the case for a couple reasons, according to our sources.

First, the Dunnhumby partnership and contract poses a problem in terms of using resources from the Tesco program for Fresh & Easy's loyalty card program. But of course Tesco owns Fresh & Easy, so it would be hard to fathom it's not borrowing from Clubcard to a certain degree for Fresh & Easy's loyalty program.

Second, Fresh & Easy has an information technology (IT) system of its own that isn't directly compatible with Tesco's in the UK. Therefore, the software for the loyalty program at Fresh & Easy has to be made to be compatible with its legacy IT system, which has been since day one and continues to be a source of numerous problems for Fresh & Easy Neighborhood Market.

Not being able to use Dunnhumby - although that doesn't mean Tesco CEO Philip Clarke, Tesco group deputy CEO and chief marketing officer Tim Mason, who's also CEO of Fresh & Easy Neighborhood Market, aren't asking questions of or getting informal assistance from certain people at Tesco-owned Dunnhumby - to develop, implement and administrate the loyalty program is a major drawback for Tesco and its Fresh & Easy chain because the firm founded by Anita Dunn and Clyde Humby, who sold out their shares in the company to Tesco and retired, is one of the best around at customer response marketing and loyalty programs.

In fact, one of our sources who's familiar with Fresh & Easy's loyalty program tells us, from the source's perspective, the program lacks expertise from a marketing, information technology and software delivery standpoint. And when it comes to loyalty programs, IT, software performance and marketing are about all that matters. Therefore, in the source's view, Fresh & Easy's loyalty program is far from ready for prime time.

Tesco considered developing and introducing a loyalty program at Fresh & Easy Neighborhood Market last year. But it decided against it for a variety of reasons.

Two key reasons it decided against it last year were because CEO Mason decided sales and sales growth at Fresh & Easy was not at a point where doing so was feasible, and because one of Fresh & Easy's key marketing propositions since 2008 has been its low prices without having to use a loyalty card positioning and slogan.

The latter of the two remains a problem from a marketing positioning and communications for Fresh & Easy in introducing a loyalty program, even though the chain has been down-playing that particular positioning element for the last year or so.

But the issue doesn't even have to come up publicly to be a problem. Rather, the inherent problem is that using the low prices without a loyalty card theme and then introducing a loyalty card has the potential to create confusion in the minds of consumers about Fresh & East, despite whatever marketing and public relations spin the chain puts on the 180-degree change.

Read what we wrote about a loyalty card at Tesco's Fresh & Easy in this 2010 piece - February 2, 2010: Dunnhumby; Trial Balloons By Media; and Fresh & Easy's Loyalty Card Marketing Trap. We also offered this analysis in 2009 - December 8, 2009: Analysis: Why A Loyalty Club Card Program Makes Zero-Sense For Tesco's Fresh & Easy USA.

Depending on the nature and quality of the loyalty program Tesco's Fresh & Easy implements this year, if it doesn't change its mind about doing so which it's done before, it might not pose a problem from a sales standpoint to do so now - particularly to the extent it would have in 2009 or even last year - although based on what we've learned from our sources it doesn't appear the loyalty program is ready for prime time.

But the devil is in the details. For example, we wouldn't suggest the loyalty card be required to get promotional deals on items offered in the grocer's weekly advertising circular or for in-store specials, as commonly is the case with grocer loyalty programs.

Why: Because at Fresh & Easy's limited stage of development, along with its struggles to grow sales, limiting such promotions to loyalty card members only is a prescription for reduced sales, in our analysis, which is something the grocery chain can hardly afford to do. Using the card in this way also has the potential to serve as a barrier to new shoppers trying Fresh& Easy, in our analysis.

Fresh & Easy Neighborhood Market CEO Mason and Tesco CEO Clarke at present intend the loyalty card program to be a replacement for the grocery chain's chronic use of its deep discount (20%-25% off) store coupons - the $5 of $20/$25, $6 of $30 and $10 off $50 versions particularly - which as we've written extensively about are a major contributor to Fresh & Easy's negative-38% margin, which it reported for its 2010/11 fiscal year, ended February 26, 2011.

That margin metric hasn't improved over the last four months. In order for Tesco to break-even with Fresh & Easy by the end of its 2012/13 fiscal year, which is just 20 months away, it must increase the El Segundo, California-based chain's margin significantly - and fast.

Tesco currently has 176 Fresh & Easy stores - which average about 10,000-12,000 square-feet and offer a limited assortment (about 5,000 SKUs) of fresh foods including: produce, meats, perishables, frozen and ready-to-eat and heat fresh-prepared foods, along with beer, wine (liquor in some stores) and packaged food, grocery and general merchandise items - in California (127 units), Arizona (28) and Nevada (21)

Replacing the discount coupons, which are also a major contributor to the 11% comparable-store-sales growth Tesco reported for Fresh & Easy in April for the 2010/11 fiscal year, is far easier thought about and said than actually done though.

Fresh & Easy Neighborhood Market has been using the coupons chronically since 2008. It tried eliminating them in 2009, as we've reported, but after a couple months sales dropped so significantly without the vouchers it started issuing them again at the same regular pace, something Fresh & Easy has continued to do right on up to today. Take them away, in our analysis, and that double-digit comparable-sales-growth drops significantly.

So far this year, for example, the grocer has had one or more of the 20%-25% off coupons in distribution at virtually all times, issuing a new coupon online about every three weeks (with dates good for about three weeks), along with including paper coupons in its direct mailed advertising circulars nearly every week, plus issuing special coupon books regularly, which contain one month's worth (usually four) of coupons.

Fresh & Easy includes the online coupon in its quasi-loyalty "friends of fresh&easy" e-mail-based promotional program. Theoretically at least, the coupons are therefore only supposed to go to consumers who are signed up for the program.

But that's not the case because every time Fresh & Easy distributes a new coupon via "friends of fresh&easy," numerous Coupon Maven and Mommy Bloggers post the vouchers on their sites, where the discount coupons are available for download by anyone. Google "Fresh & Easy Coupon" and you will see what we're talking about. People also post the coupons on Twitter, Facebook and other social media sites. All that's required to obtain them is knowledge of how to use Internet, or knowing someone who does.

The store coupons serve a "pull" function for Fresh & Easy Neighborhood Market though, in which in addition to encouraging people to return to the stores and shop (by getting more coupons), they also are designed (at least in theory) to draw or "pull" new customer into the stores, which is something that's essential for Fresh & Easy a this stage in the game.

The coupons are designed to do this in an immediate - nothing to join; just clip a coupon and come on in and shop - and regular way; and to do it fast. In contrast loyalty programs take a long time to develop and aren't the best vehicle for "pulling" shoppers into grocery stores until hundreds of thousands of consumers join the retailer's loyalty program.

This is a factor Tesco and Fresh & Easy better think deeply about as they go forward with the loyalty program. They have to eliminate or only use the deep discount coupons promotionally, say once per quarter instead of all the time, in order to improve margins.

But we doubt if a loyalty card program will address or solve the coupon issue directly for Fresh & Easy. And its hard to believe the program we've learned about from our sources is something Tesco wants to unleash on the Fresh & Easy stores soon.